EDP to Sign LNG Import Deal as El Salvador Seeks to Cut Oil Use

Jul 03, 2014 11:30 am ET

July 3 (Bloomberg) -- Energia del Pacifico SA, the winner of a tender to build a power plant in El Salvador, plans to sign this month a purchase agreement for the first supply of liquefied natural gas to mainland Central America.

EDP, a venture between Quantum Energias Limpias and Finland’s Waertsilae Oyj, will buy 500,000 metric tons of LNG a year to fire the power plant it will build at the port of Acajutla in a project backed by the World Bank’s private lending arm, according to Alejandro Alle, Quantum’s chief executive officer. The contract will be for 20 years of supplies for the facility that’s scheduled to start commercial operations in January 2018, he said.

“We received two proposals and we’ve chosen one that is now binding, with the deal to be signed at the end of July,” Alle said yesterday in an interview in London, disclosing only that the seller is an oil and gas company. “This will be the first project in continental Central America to receive LNG.”

Central American nations face a tripling of electricity demand by 2030 and national budgets have been strained as their bill for oil products to help meet that need has more than quadrupled since 2010, the Institute of the Americas said in an October report. El Salvador seeks to cut its reliance on fuel oil and diesel to 18 percent of power generation in 2018 from 40 percent last year, it said.

Six to eight LNG vessels a year will arrive at Acajutla to supply the 355-megawatt plant, Alle said. The project is supported by the World Bank’s International Finance Corp., which has been mandated to provide financing and guarantee products for EDP, Josef Skoldeberg, an IFC spokesman, said yesterday by e-mail.

Brent Link

The LNG price on EDP’s purchase agreement will be tied to Brent crude, Alle said. Linking the contract to U.S. gas on Henry Hub could mean the plant becomes less competitive when prices rise in the U.S., Marco Tavares, the chairman of consultants Gas Energy in Rio de Janeiro, an adviser to EDP, said yesterday in London.

Next-month gas jumped more than 50 percent from January to a February peak on the New York Mercantile Exchange as freezing weather boosted heating demand. Brent crude was little changed over the period on the ICE Futures Europe Exchange.

LNG demand in Central America could grow further as fuel oil-fired power plants get replaced with gas ones, said Alle, adding that Quantum may consider such conversions. The company, which owns 80 percent of the plant in Acajutla, is in the process of selling a majority stake to a third investor, he said, declining to disclose the buyer’s identity.

The islands of the Dominican Republic and Puerto Rico are the only nations in the Central American region with LNG import terminals, according to the International Group of LNG importers. Trinidad & Tobago is the world’s fifth-largest producer of the fuel chilled to minus 163 degrees Celsius (minus 262 Fahrenheit), with exports last year of almost 14 million tons, data from the Paris-based group showed.